3i Group Reportedly Rejects Takeover Bid by European Rival

I've said before -- most recently last week -- that if we're right about a company being undervalued it could find itself "in play." The next example of this just might turn out to be 3i Group PLC (III/LN), according to a report in The Times of London. The new caused 3i shares to jump 5.7% in London yesterday.

Scroll down the article and read:

3i Group took on 55.5p to 970.5p, on talk that the investment house last month rejected a £6 billion offer from a European rival. That would be equivalent to about £11 a share. (3i would not comment, as is its policy on such matters.)

Interest in 3i from a private equity peer would be no surprise, given the stock market values the stock at little over net asset value. Equally, it would be no surprise if 3i's new management team of Philip Yea and Simon Ball -- chief executive and finance director respectively -- were keen to reap the benefit of the group's increasingly mature portfolio of investments.

About two-thirds of 3i's current investments are expected to reach maturity within the next three years. This month's stake sales of information group Williams Lea and drugmaker Betapharm will likely be followed next year by flotations of Renta, Vonage and Magix.

This building momentum comes at a time of buoyant equity markets and limited reinvestment opportunities. Many investors therefore see the stock as carrying lower risk than usual. They also foresee a larger proportion of the cash generated by the realisations coming back to them.

Merrill Lynch, viewing 3i as a specialist lender rather than a conventional venture capitalist, has a target price of £10.50 on the stock.

3i Group was first recommended on this blog on May 17. You can read the original rationale for owning the shares here.

P.S. One thing I've noticed scanning the Dow Jones Newswires the past year is that 3i has been steadily buying back its stock. Always a good sign.